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Sales of new homes slide in January

Associated Press
Published March 1, 2005

WASHINGTON - Sales of new homes fell 9.2 percent in January while the median price of a new home skidded to the lowest level in more than a year. Analysts blamed the worse-than-expected showing on bad weather in many parts of the country rather than any serious problems in the red-hot housing market.

New home sales dipped to a seasonally adjusted annual rate of 1.11-million units in January with every region of the country except the West exhibiting weakness, the Commerce Department reported. The median price of a home, the point where half sold for more and half for less, fell 13.2 percent to $199,400, the lowest level since December 2003.

Analysts sought to minimize the significance of both declines, however, saying they were heavily influenced by bad weather in many parts of the country in January. They said that housing, the standout performer of the current recovery, should remain on solid footing this year unless mortgage rates rise more than expected.

In a second Commerce report, personal incomes, which had been bolstered by a large stock dividend payment in December, plunged 2.3 percent in January. That was the sharpest decline in more than a decade for personal incomes, which posted a record 3.7 percent jump in December.

However, the government said that both months were skewed by a $3 per share dividend payment that computer software giant Microsoft made on Dec. 2.

Without the huge $32-billion dividend payment by Microsoft, personal incomes would have shown steadier gains of 0.6 percent in December and 0.5 percent in January.

Personal spending was unchanged in January after having risen by 0.8 percent in December. This reflected the fact that demand for autos sagged in January as dealers removed attractive incentive offers they had used to spur end-of-the-year sales.

A gauge of inflation tied to consumer spending showed that prices outside of food and energy rose by 0.3 percent in January, the biggest one-month jump in more than three years.

Stocks were lower on Wall Street as investors exhibited new inflation concerns, reflecting the price jump in consumer goods and a further increase in oil prices. The Dow Jones industrial average was down 80 points in early afternoon trading.

Economists believe that consumer spending, which accounts for two-thirds of economic activity, will remain strong this year but at a slightly slower pace than last year. That would reflect an expected steady rise in interest rates as the Federal Reserve keeps pushing rates higher to make sure the economic expansion, now in its fourth year, does not generate unwanted inflation.

Analysts look for mortgage rates to gradually rise as well, to around 6.5 percent for the 30-year mortgage by the end of the year.

Last week, the National Association of Realtors reported that sales of existing homes and condominiums had fallen as well in January, dipping a slight 0.1 percent to a seasonally adjusted annual rate of 6.8-million units.

Both sales of new and existing homes set all-time highs in 2004.

For January, consumer spending was held back by a big drop in demand for durable goods such as cars. The unchanged overall figure was the weakest showing since a 0.3 percent decline in June of last year.

Disposable, or after-tax incomes, fell by 2.6 percent in January after having shot up by 4.1 percent in December, changes that were also influenced by the Microsoft dividend payment.

The drop in disposable incomes pushed the savings rate down to 1 percent in January.